NZ Automotive Investments owns the nationwide chain 2 Cheap Cars. Photo / Brett Phibbs
OPINION:
Smaller investors appear to have been caught in the middle of a spat this week between two major shareholders at NZ Automotive Investments.
The company, which owns the nationwide car dealership 2Cheap Cars, has had nearly $10 million wiped off its market capitalisation after four of its directors resigned citing "irreconcilable differences" between them and remaining director and major shareholder David Sena.
One of those who resigned was Eugene Williams, who owns 34 per cent of the company.
Oliver Mander, chief executive of the New Zealand Shareholders' Association, said retail investors had been caught in the crossfire between two majority shareholders, highlighting the importance of having a majority of independent directors on publicly listed company boards.
Last year the association raised concerns with the company about director independence as part of its annual assessment report.
"We did talk to them around that director independence issue because it is something we get quite concerned about - particularly when you have got majority owners," said Mander.
One of the issues raised was a lack of a relationship description for director Tracy Rowsell - one of those who resigned this week.
"We were slightly critical of that with them because we felt that her very close relationship with David Sena at that time should have been disclosed."
At the time Rowsell was a trustee on Sena's family trust. Mander said the association felt that should have been disclosed.
He said the company had taken on its concerns and had been keen to bring more independent directors onto the board.
But a quick look at the company's sharemarket notices shows the challenges involved in doing that and the tension building on the board.
In early April, two independent directors tendered their resignations. Michele Kernahan's resignation was effective immediately while Karl Smith resigned from the chair's role but said he would stay on the board until another independent director could be found.
Tim Cook was appointed an independent director in late April, freeing Smith to depart.
Then CEO David Page resigned on July 1, although he will serve out his notice period until September 30.
And now Cook, Rowsell, Williams and acting chair Charles Bolt have all resigned.
On Wednesday remaining director and shareholder Sena nominated three new directors to be appointed at the company's annual shareholder meeting on August 25, but already one has withdrawn.
Mander said NZX listing rules required three directors on a company's board. The code of corporate governance recommends the majority of directors be independent but there is no requirement for that in order to be compliant.
Mander said the association had made a submission on the code, calling for elements of it to be moved into the listing rules. "That's exactly for situations like this."
He said the NZSA often heard from companies that their boards reflected the make-up of their ownership but that was not good enough.
"NZA has provided the perfect example as to why. There is an issue with those founders. What we are seeing is that retail shareholders are caught in the crossfire in the fallout between two founders who own a significant stake."
Shareholders have sold up this week, resulting in the share price falling from 65c to 44.5c.
Mander said investors should be wary of buying into any company with major shareholders which did not have an independent board.
Investors already in the company now have the option of selling or sticking with it to see how the new directors pan out.
But investors will no doubt be wanting information on how independent those nominated directors are.
Mander said he wanted to see details of the proposed directors' qualifications in the notice of meeting and a clear statement about why they were independent.
As to how the issue between the major shareholders is resolved, that could require one to sell out and with the share price now dramatically reduced, that will no doubt be less attractive.
In an unusual situation, Infratil was both a seller and a buyer this week when it came to the sale of Vodafone's cell tower assets.
Infratil owns 49.95 per cent of Vodafone NZ, which sold its cell tower network for $1.7 billion. But it was also part of the consortium buying a 20 per cent stake.
While the sale price is seen as fair and on par with Spark's recent sale of its towers, some Infratil investors have been left scratching their heads over why Infratil would want to be a direct investor in the tower assets.
In a note this week, Jarden analyst Neville Gluyas pointed to the high multiple achieved in the sale price but said investors may be less convinced by Infratil's direct purchase of the 20 per cent stake for approximately $340 million.
"A high 33.8x multiple can perhaps be rationalised by assuming an ultra-low cost of capital plus future growth from shared tenancy and more towers, but Infratil is not typically regarded as targeting ultra-low returns."
The NZSA's Mander said there was no doubt the sale of the tower business was good for Infratil investors, but he was curious about the 20 per cent direct stake in the company that had bought the towers.
"They are both seller and buyer essentially." Being on both sides of the deal bought an interesting dynamic to it, he said.
"But the fact that the value of the deal is at a similar level to the Spark sale late last week. I've got no doubt it's an appropriate price."
However, he said it was very unlike Infratil to be buying into this sort of investment directly.
"They look for value and they look for undervalued companies they can influence and change and create value from. The Vodafone investment is a classic example of that."
But he said from an investor prospective, the direct tower investment was more like buying into a stable dividend stream.
"That's very unlike Infratil. The question we have got is does it signal a change in their investment philosophy? Why have they done that?"
Mander also questioned whether purchasing the 20 per cent stake was tied into the sale deal.
But an Infratil spokeswoman said buying the 20 per cent stake was not a condition of the sale.
"Infratil chose to retain a position in the TowerCo business which it already owns through Vodafone NZ. Part of the reason we liked Vodafone as an investment was its exposure to this embedded infrastructure, so retaining some of that exposure is consistent with our original investment thesis."
She said finding undervalued companies and turning them around was not really a focus for Infratil, although it had done that.
"Infratil invests in a portfolio of infrastructure businesses taking a long term perspective, targeting an 11–15 per cent return over a rolling 10-year period. Within our portfolio we hold a mix of lower and higher risk/returning assets."
She said the lower returning assets had reliable long-term, inflation-linked cashflows with growth opportunities embedded within them.
"They are also businesses that provide essential infrastructure for local communities and will often support Infratil's more growth-focused assets by providing reliable cashflows. TowerCo fits perfectly into these investment criteria, and sits well alongside our investment in Wellington Airport and Manawa, and complements our investment in Vodafone NZ."
Jarden's Gluyas said proceeds from the sale would effectively wipe Vodafone's external debt - currently sitting at $1.34 billion - and leave about $320m in net cash.
It could also provide an opportunity to repay some of Infratil's $280m shareholder loan to Vodafone
Gluyas remains overweight in the stock and has increased his target price from $8.60 to $8.85.
Infratil's share price closed at $8.06 yesterday.
After a tough couple of years for its share price, dual-listed online lender Harmoney seems to have turned a corner.
Its shares rallied this week after it gave a trading update and a 2023 outlook that was ahead of expectations for some analysts.
Harmoney has forecast a cash profit for the 2022 full year and growth into FY23 as it looks for returning customers to bolster its books.
Jarden analysts increased their target price from A$1.05 to A$1.15 on the update and have a buy rating on the stock.
They say the key risks for the stock are higher interest rates leading to increased funding costs, a rise in loan impairments and regulation of loan approvals in New Zealand.
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